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Minyan Mailbag: Where Does GLD Get All That Gold?


No shortage in the yellow metal - yet.

Professor Lewis,

Specifically, from whom does the Gold ETF (GLD) purchase the physical commodity in such large quantities?

Minyan K

Dear Minyan K,

It's purchased on the London Bullion Market (just as you might buy a stock on the NYSE, though London is OTC and not a true "exchange" environment). GLD's vaults are also conveniently located in London.

The LBMA just reported this morning that gold ounces transferred between accounts held by bullion clearers rose 8%, to a daily average of 18.8 million ounces (533 tonnes) in January from a month earlier.

And for those who might not be aware, a "metric tonne of gold" is about a cubic foot. So it's not as large as one might think. In fact, all the gold in the world could be fit into a tennis court-sized cube. Hence, gold is very rare and very valuable.

There seems to be a misunderstanding (largely due to misinformation being spread by certain "Internet commentators") that there's a "shortage" of gold. There isn't - though there is a significant shortage of gold coins and small bars, but the larger bars can still easily be found, despite robust investor demand for the yellow metal.

When we see GOFO turn negative and indicate backwardation for a sustained period, then we'll know even the larger bars are difficult to find.

But we're not there yet.

Professor Lewis
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